October 7, 2022

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Market downturn is causing the longest drought in a US tech IPO in more than 20 years

Market downturn is causing the longest drought in a US tech IPO in more than 20 years

The stock market’s slump since the start of the year has caused the longest drought on US tech listings this century, with experts cautious about the pace of recovery even after signs of life in other sectors.

Wednesday will mark 238 days without a technology initial public offering worth more than $50 million, beating previous records set in the wake of the 2008 financial crisis and the crash of the internet in the early 2000s, according to research by the tech capital markets team at Morgan Stanley.

The US stock market has been affected this year The Federal Reserve’s fight to lower inflation Through sharp increases in interest rates. The higher rates have affected stock valuations by driving down future earnings, and raised fears of pushing the economy into recession.

high growth Technique Stocks dominated the record IPO market last year and enjoyed some of the biggest gains during the stock market boom, but they have been disproportionately hurt by heavy selling this year.

The tech-dominated Nasdaq Composite is down nearly 28 percent so far this year compared to a drop of just over 19 percent in the S&P 500, while the IPO Renaissance Index, which tracks US listed companies in the past two years, is down more. than 45 per cent.

“There is a tremendous amount of uncertainty in the market right now, and uncertainty is the enemy underwriting market,said Matt Walsh, Head of Technology Capital Markets at SVB Securities.

“I think we will need to see some stability in the outlook and investors pull back to buy existing public securities before they are ready to go further down the risk curve and buy technical IPOs.”

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life insurance company Corbridge Last week completed its first $1 billion U.S. initial public offering since January, and the early cautious reception highlighted investors caution for even the most established and most profitable companies.

Even after the Corebridge deal, total US IPO volume is down 94 percent year over year, raising just $7 billion so far in 2022 compared to $110 billion in the same period last year, according to Dealogic data.

Corebridge has been closely watched as evidence that investors are looking for more deals. But Nicole Brookshire, a partner at tech listings law firm Davis Polk, said other factors such as weak earnings reports could have a “much bigger impact” on the prospects for new tech exporters.

“Guidelines have worsened with some companies and sectors [and] Many companies are feeling the effects of the overall headwind affecting valuations.

The S&P 500 IT groups nearly missed earnings estimates in the second quarter, according to FactSet, but expectations for the third quarter have been repeatedly revised lower, with earnings now expected to fall 4 percent year over year.

Many tech groups have responded to the economic downturn by focusing more on cutting costs and showing progress toward profitability, but Brookshire said companies will need time to show the changes are working.

Last year there was little discussion about profitability [among IPO candidates]. Now there is more, but the problem with shifting the focus from the growth story to the profit story is that exporters take time to be able to prove their progress.”

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The most positive factor prolonging the drought, Walsh added, is the fact that tech companies raised so much private capital before the downturn that “there is not the same sense of urgency”. He said he expects a “small group” of companies will still try to list this year, but he said most of them have already postponed plans to 2023.